The books of John Dos Passos Corporation carried the following account balances as of December 31, 2007.

Question:

Cash ....................... $ 195,000

Preferred stock, 6% cumulative, nonparticipating, $50 par .. 200,000

Common stock, no par value, 300,000 shares issued ..... 1,500,000

Paid-in capital in excess of par (preferred) ........ 150,000

Treasury stock (common 4,200 shares at cost) ....... 33,600

Retained earnings .................. 105,000

The company decided not to pay any dividends in 2007.

The board of directors, at their annual meeting on December 21, 2008, declared the following: “The current year dividends shall be 6% on the preferred and $.30 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock.” At the date of declaration, the preferred is selling at $80 per share, and the common at $8 per share. Net income for 2008 is estimated at $77,000.

Instructions

(a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously.

(b) Could John Dos Passos Corporation give the preferred stockholders 2 years’ dividends and common stockholders a 30 cents per share dividend, all in cash?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...